Problem set 6 Spring 2007

# Problem set 6 Spring 2007 - Economics 100 Problem Set#6(due...

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Economics 100 – Problem Set #6 (due Tuesday, May 15) Spring 2007 Page 1 of 3 Questions 1-7 examine the predictions of the inflation adjustment and aggregate supply model of chapter 15. Suppose that the U.S. economy is at an original equilibrium with real GDP = 12,000; equilibrium inflation = 3.0%; and potential real GDP Y * = 12,000. Suddenly, consumer spending rises by 1,000 so that the AD curve shifts to the right by 1,000. Real GDP ( Y ) inflation rate ( π ) LRAS SRAS 13,000 12,000 AD 3.0% 4.0% AD’ 2.0% 1. In the above diagram, indicate the new short-run equilibrium with a circle ‘ Ο ’ and a ‘1’ 2. The new short-run equilibrium has real GDP = _____________, inflation rate = ___________, and potential real GDP = _____________. 3. Using your answer to question 2, calculate the output gap relative to potential * * YY Y .

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Economics 100 – Problem Set #6 (due Tuesday, May 15) Spring 2007 Page 2 of 3 4. Suppose that policymakers do nothing in response to increased consumer spending. What would happen to the inflation rate to bring the economy back to full-employment? Be specific.
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## This homework help was uploaded on 04/18/2008 for the course ECON 100 taught by Professor Kasilwal during the Spring '07 term at CSU Long Beach.

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Problem set 6 Spring 2007 - Economics 100 Problem Set#6(due...

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